CAMPANIELLO ET AL. PAPER SUMMARY AND KEY FINDINGS

The key economic question being asked in the paper is whether private returns
exist in unlawful activities. The paper by Campaniello et al. aims to determine whether
there is a positive relationship between education and engagement in legitimate and
illegitimate activities. The authors used a case study of the Italian-American mafia, one
of the criminal corporations that existed for many years between the 1930s and 1960s.
The study analyses information from the Federal Bureau of Narcotics (FBN) of seven
hundred and twelve mafia members of the Italian-American mafia and compares it with
the 1940 United States (U.S.) Census of Population. The census provides details about
income, education, housing values, and residence address. Campaniello et al. created
a sample of white, male, and similarly aged neighbors of the mobsters to compare their
returns on education.

Question Two

The authors use two sources for their dependent variable: the natural log of
income and the natural log of housing value based on their address. The natural log of
income was self-reported income from the 1940 census (Campaniello et al., 2016). As a
researcher, I would use specification (2), which uses the natural log of housing value as
the dependent variable since the mobsters had the incentive to under-report their
incomes during the census to avoid raising suspicion and being subjected to
investigations. The housing value was based on residence address, and individuals
could not manipulate it. None of the specifications eliminates bias since the authors may
not have included all the independent variables in the research. The R-squared value

Paper Summary and Key Findings 3
increases with an increase in independent variables, which does not mean the model
provides a better fit. The housing value based on the individuals’ addresses is factual
and with fewer chances of manipulation. As a result, the specification model will yield
more reliable and accurate results. The mathematical model below shows how a bias in
any of the coefficients affects the entire equation and results:
ln Yi = β0 + β1Educi + β2Experi + Controls + µi
Regression analysis is an essential and reliable method for identifying which
independent variables significantly impact the dependent variable (Sarstedt & Mooi,
2019). Regression analysis enables researchers to determine which factors matter the
most and which factors should get ignored. The authors include the regression results
for the exact specifications for non-criminal neighbors to show how the model explains
data variation. For instance, the regression results show how the independent variables
such as years of education and potential years of experience affect individuals living in
houses valued at a particular value or those earning a particular income level.
Comparing the R-squared value enables the researchers to determine if the
independent variables affect the dependent variables regardless of whether they
participate in illegal or legitimate activities.
Question Three

Based on specification (2), which uses the natural log of housing value, the
computed R-squared values are 0.059 for the mafia members and 0.054 for their
neighbors. The R-squared values show that 5.9% of the variation in the housing value
lived by mafia members is explained by the variation in the exploratory variables, years

Paper Summary and Key Findings 4
of education, and potential years of experience (Campaniello et al., 2016). On the other
hand, 94.1% of the housing value variations cannot be explained by variations in the
years of education and the potential years of experience. In the case of the neighbors,
5.4% of the variation in the housing value is explained by the variation in the exploratory
variables. In comparison, 94.6% of the variation cannot be explained by the variations in
the exploratory variables.
Degrees of freedom= N-2
304-2= 302 for mafia members
1800-2= 1798 for neighbors
The degrees of freedom are helpful in the t-test to determine the critical values from the
t-distribution table (Kim, 2015). The critical values are -1.96 and +1.96 at a 5%
significance level.
t= 0.085/0.016= 5.31
t= 0.042/0.008= 5.25
The variables are statistically significant since they exceed the critical values of the t-
distribution table.
Years of education:
t= 0.085-0.102/= -0.9503
Potential years of experience:
t= 0.042-0.039/= 0.3354

Paper Summary and Key Findings 5
All the coefficients are economically significant. A Chi-square test would help determine
whether the estimated returns to education are equal among the Mafia members and
their neighbors. The Chi-square test determines whether the observed results align with
the expected results (Franke et al., 2012).

Question Four

An F-test determines whether two samples come from the same population
(Gupta & Kapoor, 2020). The hypothesis being tested:
Null Hypothesis: H0: = =
Alternate Hypothesis: H1: ≠ ≠ ≠
When using the F-distribution table, the degrees of freedom are given by n-1. According
to the F-distribution table, the critical value at 5% confidence level is 1.0.
F= SSR/k ÷SSE/ (n-k-1) = MSR/MSEF (k, n-k-1)
Since, we are given , the formula becomes;
F= (n-k-1) / 1- (k)
For the mafia members, = 0.466, the sample size, n= 180, and the number of variables,
k=10. The next step is to substitute the figures in the formula;
F= 0.466/ (1-0.466) ÷ (180-10-1)10= 14.75
Question Five

There are significant returns to education for criminals since the mafia business
mixes legitimate and illegitimate business activities. Mobsters need skills acquired in

Paper Summary and Key Findings 6
education such as developing and managing supply chains, risk management, and
logical thinking to successfully conduct illegal activities such as loan sharking, extortion,
and racketeering (Campaniello et al., 2016). Illegitimate activities such as loan sharking
enable mobsters to acquire legitimate businesses which they can use for money
laundering. Returns to education in such illegal activities are high. Education is quite
valuable for white-collar criminals (Nguyen, 2019). The criminals need to be well-
educated due to the high complexity of their crimes, and the criminal networks they get
involved with portray a good reputation as polished individuals. Criminals in well-
established criminal organizations require cognitive, organization, and communication
skills acquired through education to execute their activities and rob people. According to
the FBN files, mafia members were mainly charged with white-collar crimes such as
embezzlement of funds and fraud. The crimes need intelligence and skills which are
acquired through education.

Paper Summary and Key Findings 7

References

Campaniello, N., Gray, R. and Mastrobuoni, G., 2016. Returns to education in criminal
organizations: Did going to college help Michael Corleone?. Economics of Education
Review, 54, pp.242-258.
Franke, T.M., Ho, T. and Christie, C.A., 2012. The chi-square test: Often used and more
often misinterpreted. American Journal of Evaluation, 33(3), 448-458.
Gupta, S.C. and Kapoor, V.K., 2020. Fundamentals of mathematical statistics. Sultan
Chand & Sons.
Kim, T.K., 2015. T test as a parametric statistic. Korean Journal of
anesthesiology, 68(6), p.540.
Nguyen, H.T., 2019. Do more educated neighborhoods experience less property crime?
Evidence from Indonesia. International Journal of Educational Development, 64, pp.27-
37.
Sarstedt, M. and Mooi, E., 2019. Regression analysis. In A Concise Guide to Market
Research (pp. 209-256). Springer, Berlin, Heidelberg.